Regulation and innovation drive agenda of second SWIFT Business Forum Frankfurt

The SWIFT Business Forum Frankfurt on 22 April brought together 170 delegates to explore the theme, "Regulation versus innovation - conflicting priorities in the German banking industry". In his welcome, Jürgen Marstatt, Head of SWIFT Germany, emphasised the powerful combination of the Business Forum with the German AGM, in which members were invited to use their voice in shaping SWIFT's future strategy and activities.

In his opening remarks the host of the conference, Stephan Müller, Chair NMG Germany and CIO, Commerzbank, outlined current developments in the global economic environment.

On SWIFT's 2015 strategy, Müller said the goals set in 2010 had been achieved, and the focus on new compliance services to address KYC and sanctions challenges had hit the mark. The new focus on real-time payments is expected to have the same impact within the 2020 strategy, which will extend the basic pillars of the previous strategy, such as extending the core, and in addition is to concentrate on market infrastructures and compliance. He closed his presentation with some interesting figures. In 2014 Germany ranked third amongst the top 20 countries worldwide in FIN traffic received and fourth in FIN traffic sent. In terms of FileAct traffic, Germany was by far the global leader in 2014 with more than 7.500 million messages sent from a total of over 17.300 million within the top 20 countries.

Strategic response to real-time payments demand

SWIFT CEO Gottfried Leibbrandt gave an update on the latest developments from SWIFT. He referred to some impressive performance data underlining its financial and operational strength. The number of FIN messages grew by 11% last year up to more than 5.6 billion and SEPA made the number of FileAct messages triple, while the overall 50% price reduction commitment was delivered a year early.

With the successful implementation of SWIFT's distributed architecture and the going live of the new OPC in Switzerland, the safety and resilience of its core secure messaging network infrastructure has been further improved. Leibbrandt assured his audience that, together with the renewal of FIN, highest network security will continue as SWIFT's top priority, particularly with a view to ever-increasing cyber risks. SWIFT is complementing its core messaging services with innovative services to help its community meet their regulation challenges. Furthermore, SWIFT has focused on developing real-time retail domestic payment solutions with its first delivery being the New Payments Platform (NPP), a new Australian infrastructure expected to go live in 2017. This move is a strategic response from SWIFT to the global shift towards real-time retail payments.

Leibbrandt together with Marstatt and Christian Kothe,Head of CEE, SWIFT, then paid tribute to Ulrich Richter for his 26 years of chairing the German User Group.

Compliance solutions moving on

SWIFT's compliance services were presented in an update by Luc Meurant, Head of Banking Markets and Compliance Services at SWIFT. He said financial crime is a top priority topic for all banks in all geographies. Fighting it at significant cost does not bring competitive advantage, and there are opportunities to collaborate to efficiently tackle this universal challenge. To this end, SWIFT set up a dedicated team to manage an expanding portfolio of financial crime compliance solutions focusing on correspondent banking, including The KYC Registry, Sanctions Screening and Sanctions Testing tools, and Compliance Analytics, a business intelligence tool that helps banks monitor and address financial crime risk.

The target is to further expand the unit to become a Financial Crime Compliance Utility. As Meurant outlined, the Sanctions Screening service, for instance, currently has 325 users in 107 countries, including 17 central banks. This service was initially not aimed at large banks, but an increasing number of major banks are already participating. The roadmap for this service provides for development of an all-traffic screening option, including clients and persons screening, and fine-tuning to enhance effectiveness and efficiency on the way to creating a fully-fledged industry sanctions utility in the future.

Making ISO 20022 work with SWIFT

Victor Abbeloos, Senior Manager, SWIFT, shared detailed insights into how the ISO 20022 standard is being implemented around the globe, addressing how institutions can integrate ISO 20022 into their plans for improving automation and reducing cost and risk. Abbeloos made clear that SWIFT will continue to support FIN and is not mandating migration. There are already 200 market infrastructure led ISO 20022 implementations under way, in 90 countries, mainly in the payments and securities sectors with some activity in the trade services, foreign exchange and cards sectors.

SWIFT's approach to ISO 20022 is focused on supporting harmonisation to ensure less variation and more global market practice for MI communities, and best practice sharing to underpin community adoption and implementation. Abbeloos presented both tactical and a strategic approaches to adoption, and explained how SWIFT's MyStandards supports an institution's strategic roadmap.

Panel discussion: RMB Clearing in Frankfurt

Frankfurt became the first financial centre in Europe to clear and settle payments in yuan. When RMB clearing in Frankfurt went live in November 2014, a number of major banks started clearing RMB through Frankfurt from day one. In a dedicated session, panellists Sven Jürgensen, Head of FX Sales, HSBC Trinkaus & Burkhardt AG, Bernd Meist, Managing Director, Bank of China Frankfurt Branch, Oliver Voss, Director, Product & Technology Management FI Payments and Clearing, Deutsche Bank AG, and moderator Sabine Simoens, Payment Systems Policy, Deutsche Bundesbank, discussed the business opportunities this local clearing model brings about.

Almost all banks are participating in the clearing bank, making Frankfurt the hub of commercial RMB transactions. Higher clearing volumes are still missing and progress is controlled due to the fact that the RMB liberalisation is taking place within the strict framework of the Chinese government's 10-year plan. The RMB is already well accepted as a trade currency but is only starting to become an investment currency. More and more mid-market companies are using RMB, and there is a high demand for handling payments in RMB. It became clear that standardisation is essential for higher automation and STP. Panellists agreed that though the market is still in its infancy, the outlook is very promising.

Panel discussion: The future of payments

Instant payments with immediate availability of funds are the industry's next frontier, according to the Euro Retail Payments Board (ERPB). Working on instant payments in euro, the ERPB is currently evaluating an instant retail payment market solution for Europe. The aim is to take advantage of integration already achieved with SEPA and avoid a fragmented market. In this session, panellists Klaus J. Müller, Head of CTS+FI Product Management Cash Services, Commerzbank AG, Carlo Palmers, Market Infrastructure Market Manager, SWIFT, Michael Salmony, Executive Adviser to the Board of Directors, EQUENS SE, Axel Weiß, Head of Payments and Current Account Strategy, DSGV, and Paula Roels, Director Market Management, Deutsche Bank (moderator), discussed the status of real-time payments globally, including what SWIFT is developing for the Australian National Payments Platform (NPP), and looking at the drivers to implement real-time payments.

The discussion revealed that the effort of making the banks' infrastructure work in real-time should not be underestimated. The ECB is aiming at a 24/7/365 real-time settlement with it yet to be decided whether a hub approach, an RTGS or a distributed approach - as developed in Australia as an interactive bank-to-bank clearing - would be preferable. Another question explored was, what really necessitates immediate availability of funds? Many concerns were mentioned, for example that security costs will be significantly higher with RTP and hack attacks will move from PCs to mobile systems. The panellists identified the billions spent on cash handling in Europe every year as one of the clear drivers; in Germany alone, 80% of all retail transactions are in cash, covering 50% of their value. On the other side, it was agreed that only overlay services generate the business case for banks.

In his closing remarks, SWIFT's Christian Kothe said the forum's discussions had demonstrated that regulation and innovation are not necessarily in conflict. He also emphasised the importance of the event as an opportunity for the community to meet and get informed about key developments as well as to exchange experiences. The day finished with a networking cocktail hosted by Commerzbank.